Home / Markets / Mark To Market /  Speciality Chemicals: outlook looks promising as growth drivers intact

Investor interest in the chemicals sector has remained firm with a strong surge in demand and realisations which have continued since FY21. Stock prices of Deepak Nitrite Ltd, Alkyl Amines Chemicals Ltd, Gujarat Fluorochemicals Ltd and many more have more than tripled in last year. Manufacturers as Vinati Organics Ltd, Navin Fluorine International Ltd, Atul Ltd, Galaxy Surfactants Ltd etc have seen gains rise more than two times.

Reports from analysts and research houses suggest a favourable environment going ahead. India Ratings and Research (Ind-Ra) has a firm outlook for the sector. According to a report, which provides a review of the sector’s FY21 performance, the domestic chemicals industry surpassed Ind-Ra’s expectations for FY21. The rating agency believes the sector's fundamentals will remain strong over medium term.

Demand environment will also be favourable, with volume uptick across end-user industries led by rising domestic consumption, push for self-sufficiency leading to potential import substitution and higher exports as global participants look for supply chain diversification away from China.

Most companies benefited from stable and lower feedstock prices, even as prices of final products rose during 2HFY21, supporting margins. Improved demand outlook and favourable commodity cycles are enabling large capex, which will be a key monitorable, said analysts at India Ratings.

While caution on new capacity additions is logical, growth prospects remain intact in the near term. Channel checks suggest that refineries, petrochemical plants and key building blocks are still operating at lower utilisations, pointed out analysts at Dolat Capital. Certain outages from the previous quarter still haven’t attained normalcy. Hence, the bulk of commodity chemicals--raw material for end-user industries--will likely report shortages in the near term.

The disruption in supplies from the US due to cyclones, followed by the Suez Canal episode and rising crude prices have led to firming up of prices of chemicals. Among other factors driving growth prospects of domestic speciality chemical manufacturers is China plus one strategy.

Indian speciality chemicals companies delivered a resilient performance in FY21 and the industry is set to grow to $40 billion by FY25, said analysts at Reliance Securities Ltd. “China+1" strategy is the key catalyst for global firms to turn towards India, they said.

China exported chemicals worth $73.7 billion in calendar year 2020. But in the aftermath of the pandemic, things have changed. Various downstream manufacturers and multinational companies, which used to import a bulk of their chemical requirements from China, are now looking to supplement supplies, say analysts.

This is a positive for Indian speciality chemicals players. Considering the long-term structural tailwinds, Aarti Industries and SRF remain top picks, said analyst at Reliance Securities Ltd.

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